BICOM

What happened: Oil prices dramatically decreased in the midst of a growing market sell off due to the impact of the COVID-19 virus. As of Tuesday morning, the international benchmark Brent crude futures stood at $36.81 per barrel, while US West Texas Intermediate futures stood at $33.17, although both of these are up since the weekend.

• The oil price collapse is expected to hit oil producing countries, such as those in the Gulf, hard.
• But Riyadh, which as the swing producer plays a key part in determining the price of oil, has decided to continue pumping oil, a move which one estimates reckon could cost the country $120 billion. Also in Saudi Arabia, two leading Saudi royals were arrested. According to reporting in The Guardian, this was after discussions between the two men about how to block the succession of Crown Prince Mohammed Bin Salman.

 

Context: Saudi and Russian officials met over the weekend to discuss cuts to production, but Russia rejected a Saudi request for deeper cuts, leading Saudi Arabia to threaten to flood the market with additional oil at discounted prices in a move that will put pressure on Russia and on US Shale oil producers.

• Petrodollars play a vital role in Saudi Arabia’s economy, at a time when the Crown Prince is trying to wean the country off of its oil dependency.
• Other Gulf economies are also highly reliant on income from oil exports. The credit rating agency Fitch warned that a $10 drop in crude prices lowers fiscal revenues in the Gulf by 2-4 per cent, depending on the country.​​​​​​​